Game Software Sales Up in 2003

The final numbers are in for 2003, and software sales were king. Forty-nine video games sold upwards of 500,000 units this year, bringing the U.S. software total to $7 billion, according to the NPD Group.

The breakdown heavily favored console games, which sold $5.8 billion (186.4 million units), while PC games accounted for $1.2 billion (52.8 million units) in sales. In 2002, total game software sales were $6.35 billion, with console games bringing in $5.5 billion in sales and PC games accounting for $1.4 billion.

On the hardware front, without the price drops of PlayStation 2 and Xbox, the sales of Xbox, PS2, GameCube and Game Boy Advance (GBA) accounted for about $2.9 billion in revenue. Yearly totals for console units sold had Nintendo's GBA up 16 percent at 8.1 million (up from 7 million in 2002), GameCube up 40 percent at 3.3 million (up from 2.3 million in 2002), Microsoft's Xbox sales even at 3.2 million (same as 2002) and Sony's PS2 sales down 25 percent at 6.8 million (compared to 8.6 million in 2002). Sony failed to meet its original projections of 10 million PS2s sold for 2003 and its amended projection of 8 million PS2s sold. Video game accessories remained a steady business for companies selling game controllers, dance mats, flight sticks and memory cards. Game peripherals brought in $1.3 billion in 2003.

The total sale of video game hardware, software and accessories once again topped Hollywood box office revenue for the third year in a row. The tallies this year were $11.2 billion in the games sector compared to $9.185 billion in Hollywood box office. At the going rate, video game software sales alone should challenge Hollywood box office totals in the next few years, with game sales just $2 billion off.

According to numbers compiled by the NPD Group, total game software sales in 2003 grew while both the movie and music industries reported losses compared with 2002 sales, according to estimates made by Exhibitor Relations and Nielsen SoundScan, respectively.

“2003 was disappointing, though not the disaster some had feared,” said Mike Wallace, video game analyst for UBS Investment Research. “The last few weeks of December saved the quarter for most. Though overall PS2 sales fell short, most companies hit their numbers by the big software surge in late December. Hitting numbers came down to the simple equation of who had the bestselling games.”

“Last year finished well after some concern over the lack of a fall price cut for the Xbox and PS2 hardware. Nintendo's move to $99 paid off, but the onus is now on them to generate more momentum in 2004, and it will likely be behind the Nintendo DS,” said PJ McNealy, senior analyst, American Technology Research.

Strong sales at the end of December helped most game publishers meet their projections. Video game sales were up overall 13 percent this December compared to December 2002.

The big winners for the year were Electronic Arts, which again relied on franchise games like Madden NFL Football (1.2 million sold through in December), Need for Speed: Underground (1.6 million sold through in December) and The Lord of the Rings: The Return of the King (880,0000 sold through in December) to increase its leading position in the video game space.

Activision was another winner for 2003, thanks to the better-than-expected sales of its key franchise titles Tony Hawk's Underground (more than 1.1 million sold in December) and True Crime: Streets of L.A. (sold more than 1.5 million since the November launch). THQ used its successful World Wrestling Entertainment video game license (295,000 units sold in December) and Hollywood tie-ins Finding Nemo (670,000 units sold in December) and SpongeBob SquarePants (425,000 units sold in December) to finish the year with the top of the pack.

For December year-over-year sales, Activision was up 38 percent, EA was up 32 percent, and THQ was up 13 percent.

“While total sales were slightly below the most bullish forecasts, the record number of blockbuster releases shows that the popularity of video games is strong and growing,” said Douglas Lowenstein, president of the Entertainment Software Association (ESA). “Moreover, that 44 of the 49 games that sold more than half a million units were rated ‘E' [Everyone] or ‘T' [Teen] reflects the fact that this industry is producing a broad array of highly entertaining content appropriate for people of all ages. That's a major reason why entertainment software continues to outpace the annual growth posted by the movie and music industries.”

Consistent with past years' numbers, announced by the ESA and annually compiled by the NPD Group, the majority of games that sold were rated ‘E' (54 percent), followed by ‘T'-rated games (30.5 percent) and by ‘Mature' (‘M')-rated games (11.9 percent). In 2002, ‘E'-rated games accounted for 55.7 percent of games sold, ‘T'-rated games 27.6 percent and ‘M'-rated games 13.2 percent of games sold. Of the top 20 best-selling console games, 70 percent were rated ‘E' or ‘T,' while 90 percent of the top 20 computer games were rated either ‘E' or ‘T.'

Stronger hardware sales are expected in 2004, with the anticipated May price reductions of both PS2 and Xbox, which in turn will offer a larger video game software buying market for the pivotal fall season. The introduction of two new portable systems -- with Sony's PlayStation Portable and Nintendo's Nintendo DS -- should also increase game sales in the fall.

McNealy added that the release of big games like Doom 3, Halo 2 and Grand Theft Auto 5 will help propel game sales growth. In addition, online console gaming will continue to grow, and game companies will gravitate to more big Hollywood licenses like Catwoman, The Polar Express and The Incredibles.